Shares of Petrobank Energy & Resources Ltd. rose more than 5 per cent Wednesday after the Calgary-based oil and gas company said it would spin off its 66 per cent stake in Petrominerales Ltd. to shareholders.
The subsidiary, which produces oil in Colombia, saw its shares climb by almost 7 per cent. Following the reorganization, Petrobank shareholders will receive approximately 0.62 shares of the former subsidiary, renamed New Petrominerales, for every share of Petrobank they currently own.
The spin off will eliminate any perceived holding discount that often gets attached to the assets of a conglomerate, says Victor Vallance, an analyst with Fraser Mackenzie Ltd. in Toronto. He estimates that in the case of Petrominerales, that discount amounted to between $1 and $2 a share.
The disposition will also improve the liquidity of Petrominerales shares, which in turn should lift their valuation. Up until now, many investors have chosen to invest in the Petrominerales assets by buying the shares of the parent company, Mr. Vallance said.
The newly renamed company, which will maintain its current management, is expected to qualify for inclusion in the S&P/TSX Composite Index, Petrobank said in a news release. In addition, it said the transaction is expected to close before Dec. 31, which would allow U.S. shareholders to benefit from reduced tax rates on corporate dividends, which are due to expire at the end of the year. Petrominerales shares are expected to be treated as qualified dividends for tax purposes, according to the news release.
In addition to ownership of Petrominerales, Petrobank owns PetroBakken Energy Ltd., which produces oil from the Bakken oil play, possibly one of the biggest onshore oil fields in North America, stretching from southeast Saskatchewan as far south as North Dakota and Montana. It also owns an experimental oil sands business that is testing new technology.
John Wright, president and CEO of both Petrobank Energy & Resources and Petrominerales, as well as chairman and CEO of PetroBakken Energy, has said for a long time that he would eventually like to see Petrobank split into four fully-independent separate public companies.
On Tuesday, Petrominerales said third-quarter net income rose 35 per cent to $35.4-million (U.S.), or 35 cents per share, from $26.2-million, or 26 cents a share, in the year-earlier quarter, due to higher oil prices and higher production. Oil production increased by 52 per cent to 32,667 barrels per day and revenue almost doubled to $231.5-million, from $119.5-million.