Calgary Herald

Vermilion takes chance in ‘unloved’ Canadian rival Spartan

- DAN HEALING The Canadian Press With a file from Bloomberg

Internatio­nal oil and gas producer Vermilion Energy Inc. is taking advantage of low valuations for “unloved” Canadian energy assets in a $1.4-billion deal to buy a Saskatchew­anfocused rival, its CEO said Monday.

The company will issue $1.23 billion worth of Vermilion shares and assume about $175 million in debt to buy fellow Calgary-based producer Spartan Energy Corp. in a transactio­n expected to close in June.

CEO Tony Marino said Vermilion has been watching the Saskatchew­an energy sector for about five years and first entered the field in 2014 because of its light oil-producing wells and good pipeline access to markets in the United States.

“The Canadian sector continued to be more and more unloved over time, especially in the past year in the capital markets, and with our evaluation methodolog­y and criteria we had, we found it came to represent better and better value,” he said on a conference call. “Spartan is probably the best example of this out there in that you have a company that is quite capable of rapid production growth.”

It’s the latest in a series of moves by Vermilion to boost its position in Saskatchew­an, an area it prefers for profitabil­ity and a favourable regulatory environmen­t as Canadian oil companies struggle with pipeline bottleneck­s and prices that have trailed the global rebound. In January, Vermilion bought an unnamed private firm with production of about 1,150 barrels of oil per day from wells near the southern Saskatchew­an-Manitoba border for about $91 million in cash.

The Spartan deal is expected to add about 23,000 barrels of oil equivalent per day, taking Vermilion’s overall output to about 95,000 boe/d.

The deal is an opportunis­tic one for Vermilion and allows Spartan to escape “an increasing­ly frustratin­g ” market where investors haven’t rewarded its operationa­l expertise with a fair stock price, said analyst Kristopher Zack of Desjardins Capital Markets in a report.

Marino said the deal will increase Vermilion’s percentage of production from North America to about 60 per cent from 46 per cent, but it will continue its strategy to have geographic­ally diverse holdings.

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