Vermilion Energy Inc. agreed to buy Spartan Energy Corp. for about C$1.08 billion ($860 million) in stock, adding to its production and acreage in southeast Saskatchewan in the largest oil and gas company takeover in Canada this year.
Spartan holders will get 0.1476 of a Vermilion share for each Spartan share, Vermilion said in statement. That represents a premium of 5 percent, based on closing prices. Vermilion also will assume about C$175 million of debt. The company expects the transaction to close on or about June 15.
The deal is the latest in a series of moves by Vermilion to boost its position in Saskatchewan, an area the company prefers for profitability and a favourable regulatory environment as Canadian oil companies struggle with pipeline bottlenecks and prices that have trailed the global rebound. Vermilion entered the region in 2014 with the purchase of Elkhorn Resources Inc. and added acreage there in 2017 and 2018.
“At first glance this looks like a very good deal for Vermilion,” Dave Popowich, an analyst at CIBC World Markets said in a note to clients. “We have seen Vermilion as a natural acquirer of assets in the ongoing industry downturn, and the company clearly sees good value in Canada at current asset prices.”
Vermilion’s takeover of Spartan comes amid a moribund environment for deals in Canada’s energy patch, with the value of mergers and acquisitions falling to $5.2 billion through April 16 from $34.2 billion for the same period last year.
Investors have shied from Canadian oil stocks with pipeline and political frustrations reaching new heights, while analysts see the potential for deals providing a potential catalyst. “While the equity markets may penalise acquirers in the short-term, we think well-priced acquisitions of quality assets can generate significant value for shareholders over time,” BMO Capital Markets told clients earlier this month.
Canada’s S&P/TSX Composite Energy index has slumped 10 percent over the past 12 months compared with a gain of 4.3 percent for their US peers, though Western Canadian Select, a benchmark for oil sands producers, has rebounded recently to trade $15 below WTI futures, the smallest gap since November.
Canadian pipeline politics have grabbed global attention as Kinder Morgan Inc. seeks to push its Trans Mountain pipeline project ahead amid objections from the province of British Columbia. Unable to dissuade British Columbia in its fight against the C$7.4 billion pipeline which exits on the west coast, Prime Minister Justin Trudeau has said his government will start talks with Kinder to backstop the pipeline.