Petrobank Energy and Resources Ltd. said Wednesday it has offered to buy TriStar Oil & Gas Ltd. for $2.24-billion in cash and stock, boosting its stake in a prolific Saskatchewan oil field and giving it the heft to cut costs.
Petrobank said it will combine its own conventional oil assets, operated by its Canadian business unit, with TriStar and spin out a new company called PetroBakken Energy Ltd.
PetroBakken will focus on its holdings in southeastern Saskatchewan, a region where oil companies are rushing to exploit the abundant but technically challenging reserves of the Bakken field.
TriStar shareholders will receive $14.75 cash, or 0.5350 of a PetroBakken share, or a combination thereof, being about $3.75 a share in cash and 0.3989 of a PetroBakken share, for each share held, the companies said in a statement. They said the offer was a 29 per cent premium to TriStar's average trading price over the past 10 days.
Primarily, PetroBakken will be a pure-play, Southeast Saskatchewan, light oil-focused company with 2009 exit production of more than 37,000 barrels of oil equivalent a day, the companies said, with 70 per cent of its output coming from the Bakken.
"We believe this transaction creates [benefits]for both Petrobank and TriStar shareholders," Menno Hulshof, an analyst with Dundee Securities, said in a note to clients. "The benefit to TriStar shareholders is obvious; a 29 per cetn premium to the current share price. We believe that Petrobank shareholders stand to benefit from the potential creation of an additional $5 [per share]in value."
Mr. Hulshof said PetroBakken stock will likely be accorded the same premium values assigned other firms, such as Crescent Point Energy Corp. , that focus on exploiting the Bakken play, a multibillion-barrel field that extends through Saskatchewan, Montana and North Dakota.
The new company will also have stakes in some of Canada's most promising unconventional gas fields, the Horn River and Montney fields in British Columbia.
After the deal is complete, Petrobank would own about 64 per cent of PetroBakken's anticipated shares outstanding, while former TriStar shareholders would own the rest.
Petrobank will continue to operate the remaining parts of its business, including its Canadian heavy oil operations and its majority owned Petrominerales Ltd. , an oil exploration and production company operating in Colombia and Peru.
"There is a lot of hidden value in each one of our business units," John Wright, chief executive officer of Petrobank, said on a conference call. "
The transaction is expected to wrap up on or near Oct. 1, though it requires the approval of TriStar shareholders. The new company expects to pay a monthly dividend of 8 cents a share.
Following completion, PetroBakken plans to divest a package of Alberta-based assets consisting of about 9,500 barrels of oil equivalent per day, and 40.1 millions of barrels of oil equivalent of proved plus probable reserves to enhance its focus on Southeast Saskatchewan light-oil resource plays.
PetroBakken will be left with reserves of 127 mmboe and one million acres of exploration lands with 1,300 potential drilling locations already identified and expected operating costs of $8 per barrel of oil produced.
The two companies said in their joint release that creating PetroBakken will lower the cost of raising capital and add operating efficiencies.