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Seven Generations Energy Ltd.’s Kakwa River Project.

Seven Generations Energy Ltd. is taking advantage of the industry downturn to buy assets from Paramount Resources Ltd. for $1.9-billion, vastly increasing its land holdings in the prolific Montney natural gas region of Alberta.

Seven Generations will pay for the deal with a combination of cash, shares and the assumption of $450-million (U.S.) of Paramount debt. It will also issue $650-million of stock in a bought deal, the latest offering aimed at funding a big asset acquisition.

It marks the first major acquisition by Seven Generations since it went public in late 2014 as global energy markets were collapsing. The company is widely viewed as one of the more successful operators during the Canadian industry's tough times, now well into the second year.

For Paramount, which is controlled by Calgary oilman Clayton Riddell and his family, the sale allows it to dig out from under the heavy debt burden that has restricted its ability to spend money on operations. Once the deal is done, its production will be about a fifth of its current volume.

The assets in the Montney – one of a handful of deposits that are the target of most of Canada's natural gas spending – are adjacent to Seven Generations' current operations in the Kakwa region, south of Grande Prairie, Alta. They increase its land position by 40 per cent and its production by an estimated 26 per cent.

"Pretty clearly, this is Paramount's crown jewel," said Brook Papau, an analyst at RS Energy Group in Calgary. "This was their area of development. They levered up a little bit too much prior to the collapse in oil prices and then the market just kind of got away on them."

Seven Generations chief executive officer Patrick Carlson said the acquisition will allow his company to employ its low-cost drilling and hydraulic fracturing operations over a larger base.

Following the completion of the deal, Paramount will be a shareholder of Seven Generations, holding about 10 per cent of the stock.

It will produce about 10,500 barrels of oil equivalent a day, roughly 20 per cent of its current output, from its remaining holdings.

"While allowing for significant deleveraging of our balance sheet, the unique structure of this transaction provides Paramount shareholders continued exposure to the considerable upside associated with the assets through the company's significant shareholdings in Seven Generations," said Jim Riddell, Paramount's CEO and Clayton Riddell's son. The family has large interests in other oil and gas businesses as well, including Trilogy Energy Corp. and Perpetual Energy Inc. The elder Mr. Riddell is a co-owner of the NHL's Calgary Flames.

Paramount's shares are down by more than half over the past year, as the company struggled with high debt and sold other assets. By contrast, Seven Generations is up more than 60 per cent.

Under the deal, Seven Generations will pay $475-million (Canadian) in cash and issue 33.5 million of its shares to Paramount, as well as assume the vendor's U.S.-dollar denominated notes. The transaction requires approval by Paramount shareholders.

Seven Generations has also agreed to issue 26.7 million subscription receipts for $24.35 apiece to underwriters led by Royal Bank of Canada, Peters & Co. Ltd. and Credit Suisse. Those will be exchanged for shares when the deal closes.

The structure is similar to Birchcliff Energy Ltd.'s acquisition of Encana Corp. natural gas assets last month, funded by a large and successful share issue. That deal was upsized by more than $100-million to $635-million due to high demand.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 8:02am EDT.

SymbolName% changeLast
BIR-T
Birchcliff Energy Ltd
0%5.31
PMT-T
Perpetual Energy Inc
+5.77%0.55
POU-T
Paramount Resources Ltd
+0.26%27.5
RY-N
Royal Bank of Canada
-0.12%100.28
RY-T
Royal Bank of Canada
-0.11%136.08

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