The combined company will become Canada’s largest condensate producer and third-largest natural gas producer. It will operate as ARC Resources and remain headquartered in Calgary.
Like other takeovers in the oil patch in the past year, ARC Resources is offering scant premium for Seven Generations. Under the friendly deal, Seven Generations holders will get 1.108 of an ARC share for each Seven Generations share.
Seven Generations also has net debt of $2.1-billion, bringing the total value of the transaction to $4.8-billion.
ARC chief executive officer Terry Anderson said in an investor call on Wednesday night the deal would save about $110-million a year by 2022 via reduced operating and capital expenditures, including maintenance, fleet vehicles, head offices and by consolidating plants.
Most of ARC’s Montney acreage is in northeastern B.C., while Seven Generations’ assets are focused in Alberta.
Mr. Anderson said the company will focus on debt reduction in the short term.
Only when it has brought that into its comfort zone will it look at further developing its assets, including ARC’s Attachie site and Seven Generations’ Nest play.
Despite the merger, the new company isn’t looking to pick up more assets any time soon.
“We don’t need more acreage. We’re going to be able to develop internally … and grow our production base in the future, but inventory isn’t our concern,” Mr. Anderson said.
ARC chief financial officer Kris Bibby added, “We certainly don’t need [mergers and acquisitions] going forward, but if something presented itself, we’d evaluate it.” Mr. Bibby will remain as CFO in the new company.
Both stocks suffered big drops after the pandemic took hold in March, but in the past six months, the price of Seven Generations shares doubled, closing at $8.02 on the Toronto Stock Exchange on Wednesday, up more than 3.6 per cent. ARC shares are up 14.6 per cent in the same period.
“With the combination providing greater scale and torque to both condensate and gas, ARC should now have greater flexibility to high-grade investments to provide maximized returns,” National Bank Financial analyst Travis Wood said in a research note.
Other buyers of Montney assets in recent months have included Canadian Natural Resources Ltd., Tourmaline Oil Corp. and ConocoPhillips. Analysts and industry executives have said for years that the region’s development would benefit from a smaller number of developers with more scale. The deal comes as Canadian natural gas prices surge on a lengthy period of frigid winter temperatures.
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