Whitecap, TORC plan to merge as oilpatch deals escalate
In a sign that consolidation is accelerating in Canada's oilpatch, Calgary's Whitecap Resources Inc. and TORC Oil and Gas Ltd announced an all-stock deal valued at $900 million including debt.
Whitecap and TORC are both intermediate players and their combination would create a premier, pure-play light oil producer with an enterprise value of about $4 billion, said Cody Kwong, analyst at Stifel Firstenergy.
Investors liked the deal: Whitecap shares jumped as much as 12.75 per cent, while TORC added as much as 8.5 per cent at one stage on Wednesday.
As part of the deal, Whitecap said it expects $15 million in cost synergies and also announced a six-per-cent hike in its dividend to 1.5 cents per share — yet more evidence some analysts said of a shift in investor preference away from oil production growth and towards profitability and resiliency against downturns.
“This is the consolidation I've been talking about for a year,” Grant Fagerheim, chief
executive of Whitecap Resources told the Financial Post. “I believed it had to happen in order to get confidence back of investors around the world, and I think we need more of these to drive costs down.”
It marks the latest merger in the Canadian energy market, following Cenvous Energy Inc.'s $3.8-billion acquisition of Husky Energy Inc. in October. Many analysts believe consolidation will only accelerate as energy companies seek greater scale and efficiency, and more important lower costs, as a bulwark against increased uncertainty and volatility.
On Tuesday after hours, Whitecap announced the deal for TORC shareholders to swap 0.57 Whitecap shares for each TORC share, representing a discount of about 4.3 per cent to the last closing price of TORC shares. The all-stock deal was valued at about $552 million, with Whitecap taking on $335 million of TORC debt.
The deal would raise Whitecap's annual oil production by 65 per cent to 100,000 barrels per day in 2021.
The two companies have a large overlap in the location of their assets, particularly in Saskatchewan, which should create significant synergies, Fagerheim said, adding that efficiency motivated the deal.
As long as oil prices remain low, which Fagerheim expects to persist for at least six more months until the vaccine is fully distributed and excess global inventory is consumed, his company will look to acquire rather than organically grow its assets.