Investors applauded with higher stock prices for both Arc Resources Ltd. and Seven Generations Energy Ltd. on Thursday following the announcement of an oilpatch marriage one analyst described as “a merger of high quality equals.”
They said the total value of the merger including debt is $8.1 billion.
In early trading in Toronto, Seven Generations stock rose by as much as 10.8 per cent to $8.88 and Arc jumped by nine per cent to $8.09.
The combined company is to operate as Arc Resources Ltd. and remain headquartered in Calgary. Arc chairman Hal Kvisle and CEO Anderson are to continue in their roles while Seven Generations CEO Marty Proctor is to become vice-chair.
“When discussions were first initiated, we saw that the combined entity would have the scale and high-quality asset base that is critical to remaining competitive in both the transitioning energy industry and the evolving capital market space,” said Proctor on the call.
“I am proud of what we’ve accomplished at Seven Generations Energy in a relatively short amount of time.”
Seven Generations was founded in 2008, while Arc began in 1996.
Arc and Seven Generations said they expect to generate cost savings from synergies of about $110 million per year by 2022 while continuing to pay ARC’s quarterly dividend of six cents per share.
Analysts rated the deal a winner in overnight reports.
“We believe market response to this transaction will be positive, given synergies, solid accretion metrics, and clear pathway to accelerated shareholder returns, which should drive value far beyond the ‘point in time’ implied acquisition premium,” said analyst Cody Kwong of Stifel FirstEnergy.
The companies are among the largest drillers into the Montney, a sprawling underground formation that straddles the Alberta-B.C. border. Its liquids-rich natural gas resource has been unlocked over the past dozen years by the development of technologies such as horizontal drilling and multistage hydraulic fracturing or “fracking.”
Access to the Montney has been the prize driving several other transactions recently, including Canadian Natural Resources Ltd.’s $111-million purchase of Painted Pony Energy Ltd. which closed in October and the $510 million acquisition of Kelt Exploration Ltd.’s Montney position by Houston-based ConocoPhillips last summer.
The deal is subject to shareholder and regulatory approvals and is expected to close in the second quarter of 2021.
