A Calgary-based energy company is demanding a cash payout in the wake of Waterous Energy Fund’s decision to merge two resource companies, and create North America’s largest private equity-owned oil and gas producer.
Paramount Resources Ltd. said Monday the amalgamation of Strath Resources and Cona Resources is not in the best interests of shareholders and exercised its right of dissent under Alberta Business Corporations Act. The move means Paramount is entitled to a cash payment of the value of its common shares.
Waterous Energy Fund (WEF), run by former investment banker Adam Waterous, announced last week it is merging its heavy oil and natural gas companies and has bought a large stake in a privately held oil sands producer to gain economies of scale and maintain access to capital.
The new Calgary-based company, called Strathcona Resources Ltd., will produce about 60,000 barrels of oil equivalent a day, around two-thirds of which is in the form of condensate and heavy oil. The rest is natural gas.
According to Mr. Waterous, WEF invested $1.5-billion in six transactions to create Strathcona Resources. The last acquisition was Cona’s purchase of debt-hobbled Pengrowth Energy Corp. early this year, which brought with it the Lindbergh steam-driven heavy oil project near Cold Lake, Alta.
Paramount president and chief executive Jim Riddell did not return requests for comment, but the company said in a statement it didn’t think the amalgamation – nor the process under which the deal was approved – were in the best interests of shareholders.
Mr. Waterous told The Globe and Mail in an interview Tuesday he was “surprised” with Paramount’s decision, given WEF received a comprehensive fairness analysis from ATB prior to the merger.
“We had other very large, very sophisticated shareholders in WEF that had different interests in each business [Strath and Cona], and we had unanimous support for this,” he said.
In 2018, Strath bought Paramount’s oil and gas producing assets in the Kakwa region of northwestern Alberta for $340-million, with half paid in cash and the rest by 85 million common shares at $2 each.
The deal gave Paramount 15.6-per-cent ownership of Strath and a seat on its board of directors, but Mr. Waterous said the merger would have seen Paramount’s share of the new business slip back to single digits.
Paramount held common shares of Strath valued at $170-million prior to the amalgamation, according to investment analysts Stifel First Energy.
However, Stifel also noted the value of those shares likely fell in the face of the global economic slowdown and oil price retreat because of the COVID-19 pandemic. That decline was reflected in Paramount’s second-quarter results, which valued its “level three” investments (including its stake in Strath) at $97-million at the end of June.
Paramount’s net debt sat at $810-million at the end of the second quarter, which Stifel said would make any sort of cash injection a positive move for the energy company.
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