Merger will create Canada’s sixth-largest oil and gas producer
No surprises are expected today as shareholders in ARC Resources Ltd. and Seven Generations Energy Ltd. vote virtually on an all-shares transaction to form Canada’s sixth-largest oil and gas producer.
The merger, valued at $8.1 billion including debt, comes amid a spate of consolidation in the Calgary-based oilpatch but analyst Cody Kwong of Stifel FirstEnergy says what makes it unusual is that it is the combination of two equally well-respected intermediate companies.
He says the only criticism he’s heard of the deal proposed in February is that it will reduce investment options by one for those looking for high-quality choices to diversify their energy company portfolios.
To proceed, the deal requires approval at virtual meetings today by holders of two-thirds of the shares in Seven Generations and a simple majority of the shares voted by ARC shareholders, along with their approval of the issuance of ARC common shares, plus court and other regulatory approvals.
The combined company is to operate as Arc Resources and remain headquartered in Calgary. Arc chairman Hal Kvisle and CEO Terry Anderson are to continue in their roles while Seven Generations CEO Marty Proctor is to become vice-chair.
Arc and Seven Generations say 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.
“We’ve seen several acquisitions and M&A activity in the past three to six months. This is probably the first time that we’ve seen a strong-versus-strong acquisition proposition, from my perspective, anyway,” said Kwong in an interview, adding the usual pattern is for stronger companies to buy weaker ones.
The merged company is to be Canada’s largest producer of condensate, a light oil prized as a diluent to be mixed with oil sands bitumen so it will flow in a pipeline. It would be its third-largest natural gas producer.
Overall combined production is expected to total more than 340,000 barrels of oil equivalent per day this year, composed of about 138,000 barrels per day of liquids like condensate and 1.2 billion cubic feet per day of natural gas.
The companies are among the largest drillers into the Montney, a sprawling underground formation that straddles the Alberta-B.C. border.