June 10, 2015Volume 5, No. 6
docFinder alert

Deals in Canada are on the upswing

Driven by disciplined strategic goals in a low oil price environment


Freehold Royalties Ltd.

Buys $321MM from Penn West

April 15, 2015

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US$13 billion transaction

May 25, 2015

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This docFinder Alert highlights six Canadian M&A deals that demonstrate how strong disciplined companies continue to execute acquisitions throughout the entire oil and gas price cycle. YTD in Canadathere have been $5.2 billion in transactions versus $14.4 billion in the comparable period a year ago. These figures do not include Repsol’s $13 billion buy of Talisman which was announced December 15, 2014.

The slide above left highlights a $321 million deal announced on April 14 with Freehold Royalties Ltd. buying two royalty packages from Penn West Petroleum. One is an 8.5% GORR across 45,000 net acres producing from the Viking. The second is a diversified portfolio of royalty interests across the WCSB. Combined, the packages are expected to provide 1,400 boe/d of production with expected annualized income of $29 million (based on price deck of US$60/bbl WTI, C$3.00/Mcf AECO and C$/US$ 0.80 exchange rate). Valuation works out to be 11X expected 2015 operating income. Investors are increasingly supporting publicly traded royalty-based companies as witnessed by the strong IPOs of PrairieSky Royalty in May 2014 on the TSX and Viper Energy in the US in June 2014. And as shown below, Cenovus is preparing to possibly IPO another royalty company.

The slide above right is a much larger deal with Repsol striking early in the oil downturn by snapping up Talisman for US$8.00/share, announced on December 15, 2014 and closed on May 8, 2015. The deal, including debt assumed, is $13 billion. While some argue that Repsol took on price risk with its early strike, oil prices today are about 8% higher than they were when Repsol announced the deal. Closing marks the end of Talisman, founded in 1992 when BP Canada sold off a 57% stake in the company and took it public. In 1993, Dr. Jim Buckee took the helm and under his leadership Talisman gained star status as a global explorer. After 15 years, Buckee stepped down in 2007, just as the North American shale revolution was getting underway. With the deal, Repsol gains great legacy assets plus exposure and experience in the North American shales where it will increase its upstream capital spending from 30% to 50% of the budget.

More HOT slides and data below.
Shown below are more hot slides from PLS’s docFinder database that show additional activity in Canada’s M&A space including slides from Legacy Oil & Gas, Whitecap Resources, Cenovus and Tamarack Valley Energy.

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featured.slides from docFinder

Slide Slide Slide Slide

Crescent buys Legacy

$1.53 billion

May 26, 2015

Whitecap buys Beaumont

$588 million

June 1, 2015

Cenovus selling royalties

3.1 million acres

June 1, 2015

Tamarack bolt-on

$54 MM for 1,420 boe/d

June 1, 2015

In the largest deal thus far in 2015, Crescent Point Energy announced a deal to acquire Legacy Oil & Gas for $1.53 billion in equity and debt assumed. CPE, already the largest Canadian Bakken producer, says it is building on its strategy of acquiring lands with high OOIP and low recovery rates. The Legacy assets add 20,000 boe/d and CPE is now guiding 2015 production 6.6% higher to 162,500 boe/d. The transaction is the result of a sales process by Legacy which resulted in 7 offers for assets and 1 offer for the company. First Energy and GMP Securities acted as co-advisors to Legacy's Board of Directors.

On March 18, 2015, Whitecap Resources announced a cash and equity deal to acquire Beaumont Energy for $588 million, including debt assumed. As the slide above shows, Beaumont brings another high quality Viking waterflood that is in very close proximity to Whitecap’s existing operations. The Beaumont deal adds 5,100 boe/d on top of Whitecap’s average 2014 production of 32,458 boe/d. Whitecap is well-positioned to thrive in a low oil price environment with 2015 netbacks of $32.85/bbl based on a US$56.00 WTI price and has a great track record of profitable growth.

Following the successful deal by Encana (spinning off a royalty company PrairieSky via IPO), Cenovus is market ready to monetize 3.1 MM net acres (90% fee). IPO is an option. The royalty interest volumes amounted to ~7,600 boe/d (55% liquids) in 2014. 2014 operating cash flow was $150 MM. To give some perspective on valuation, PrairieSky priced on May 22, 2014 at $28/share for an equity value of $3.6 billion. Prior-year cash flow (2013) was $195 million – implying an 18.7X multiple at IPO pricing. The price surged 30% on day 1 – increasing the multiple to 24.3X. PSK’s trailing PE is now 21.8X.

Tamarack Valley Energy is sticking to its guns and executing a strategy for sustainability in a low price environment – which includes patience for M&A deals that are accretive. TVE pulled the trigger by spending $54 MM for three tuck-in deals at Wilson Creek adjacent to existing assets. The deals create a critical mass for lower LOE/boe and G&A/boe metrics. The deals also bring 70 locations, of which 40 are very high ROR with payback less than 1 year at $60/bbl Edmonton par prices. TVE is focused on the Cardium sweet spot with 49% IRRs and breakeven costs of $39.32/bbl.


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