Kicking Horse deal bucks fire-sale trend
CA LG ARY While some oil and gas majors are buying up distressed companies at discounted prices, the Canadian arm of Polish energy firm PKN Orlen is paying a premium for Kicking Horse Energy Inc.
Orlen Upstream Canada Ltd. announced Tuesday it had reached a deal, subject to shareholder approval, to buy Calgary-based Kicking Horse for $356 million, including debt. Unlike other deals in the Canadian oilpatch this year, only a small portion of this acquisition — $63 million — is debt.
“It was just a very good offer for where we are right now,” Kicking Horse president and CEO Steve Harding said.
He added that the response he has got from shareholders thus far has been “overwhelmingly positive.”
“This is definitely not a distressed seller,” Dundee Capital Markets analyst Brian Kristjansen said, while recommending Kicking Horse shareholders accept Orlen’s offer.
Kicking Horse, which produces about 4,000 barrels of oil equivalent per day from shale formations in northwestern Alberta, may have other suitors.
It has attracted interest from rival companies, including Para- mount Resources Ltd., which is drilling on land adjacent to Kicking Horse’s operations. Paramount Resources founder and executive chairman Clayton Riddell, billionaire co-owner of the Calgary Flames, also owns over 426,000 shares in Kicking Horse, or roughly 0.7 per cent of the company.
Kristjansen said that either Paramount or Seven Generations Energy Ltd. could launch a competing bid for Kicking Horse.
“I think it’s low, but it’s definitely feasible,” Kristjansen said of the possibility of either company making an offer.
Orlen, which first approached Kicking Horse in the late summer, began operating in Canada in 2013 after its $183-million purchase of TriOil Resources Ltd.
“Since that time, we have been able to significantly increase our resource base and production volumes. This new transaction will considerably strengthen our position in this area,” Orlen president Jacek Krawiec said in a release. The company now produces more than 7,000 boe/d in Canada.
Harding said that Orlen’s “deep pockets” are needed to continue developing Kicking Horse’s assets.
“We have grown a lot and now, to take it to the next level, was going to require a fair bit of capital and for us to get that capital in a low commodity (price) environment, we run the risk of excessive dilution or running our debt up,” Harding said.
“Our publicly stated capital available through to 2017 is in excess of US$1 billion that we can put to work, primarily in Canada,” Orlen Upstream Canada president Andrew Wiacek said at a Toronto energy conference in April.
Orlen’s acquisition of Kicking Horse follows on deal announcements last week from Suncor Energy Inc., which made an unsolicited $6.6-billion bid for Canadian Oil Sands Ltd., and Encana Corp., which sold assets in the United States for $900 million.
Despite recent activity, analysts at National Bank Financial said in a report they do not expect a sharp uptick in the number of mergers and acquisitions in the Canadian oilpatch this year because there are a limited number of buyers targeting distressed companies.