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In an oil patch that's dancing in deals, Compton Petroleum is a wallflower.
The debt-heavy oil and natural gas play has been actively trying to sell properties since last July. No one has stepped up.
Now Compton has formally put itself on the block, with the board confirming on Wednesday that an auction is taking place. It's easy to find analysts who think no one is going to show up for this sale. Compton sports a $1.7-billion market capitalization, part of which reflects a takeover premium.
In energy circles, Compton was viewed as available way back in January. That's when the Calgary-based company's largest shareholder, a U.S. hedge fund called Centennial Energy Partners with a 20-per-cent stake, began agitating. Tristone Capital and UBS Securities were subsequently hired for a strategic review that ended with Thursday's announcement.
EnCana has always been seen as the most likely buyer, given the location of the two company's properties, but there's been no sign of interest from North America's largest natural gas producer, which is in the midst of a massive restructuring.
So as an informal auction turns formal, analysts are split on Compton's future. There's a report out this week from RBC Dominion Securities that will catch the interest of hedge funds that play takeovers.
With Compton changing hands at $12.79, the investment dealer put a $15 target price on the stock, on expectation of a takeover. The dealer said it “views the decision to officially put the company up for sale positively, as it feels more value can be extracted via a sale process than as a going concern entity burdened with financial leverage.”
“The robust natural gas price environment will also provide an incentive for a more fulsome sale process, in terms of number of buyers and ultimate bid prices,” said RBC Dominion's analysts.
The opposite point of view emerged from Peters & Co., which has an $8.50 target on Compton, based on the assumption that no bidders emerge. Peters & Co. analyst Adam Twa said he recommends avoiding the stock based on “our concerns regarding the disconnect between reserves growth and production growth over the last four years, and the limited number of potential buyers due to the tremendous size of the debt.”
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