Obsidian Energy proposes share exchange offer for Bonterra
Obsidian announced it is pursuing its intention to purchase all of the issued and outstanding common shares in the capital of Bonterra Energy Corp. for consideration consisting of two common shares of Obsidian Energy for each Bonterra Share.
“We believe our Offer is in the best interests of Obsidian Energy and Bonterra shareholders” said interim president and CEO Stephen Loukas. “The combination of our companies creates a ‘Cardium Champion’ with an improved cost structure, increased capital markets relevance and positions us favourably for further consolidation within the basin.
“The combination would result in significant cost savings and additional synergies, making the transaction accretive to both Obsidian Energy’s and Bonterra’s free cash flow, funds flow from operations and production on a per-share basis while driving a faster pace of debt repayment.”
While Loukas recognizes the offer of two Obsidian Shares for each Bonterra Share is currently below a trading price-based exchange ratio, “our detailed contribution analysis supports that this is a highly compelling exchange ratio. Bonterra currently trades at a premium to Obsidian Energy and other relevant public oil producing companies, despite recent performance that has been weaker than Obsidian Energy as measured by funds flow from operations, operating costs, and well results.
“We recognize the attractive, low-decline attributes of Bonterra’s portfolio, but we do not believe that Bonterra’s valuation premium will be sustained as a stand-alone entity given that its over-levered balance sheet and lack of meaningful scale is unlikely to attract equity market support. More importantly, we believe that the combined entity will have dramatically superior financial performance due to the significant synergies available.”