Ver­mil­ion takes chance in ‘unloved’ Cana­dian ri­val Spar­tan

Windsor Star - - FP WINDSOR - 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 Saskatchewan-fo­cused 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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