Cequence is looking to sell not because of debt but because it needs cash flow to develop its main properties.Larry MacDougal/The Canadian Press
Cequence Energy Ltd. has taken drastic steps following an unsuccessful effort to find a buyer, including replacing its CEO and other top executives.
The natural gas producer, whose major shareholders are three private-equity firms, said it had parted ways with its chief executive officer Paul Wanklyn and vice-presidents Mike Stewart and Stephen Stretch, and ended its six-month search for "strategic alternatives."
Todd Brown, who was chief operating officer, has been promoted to CEO.
Cequence said its board evaluated proposals it received from third parties and determined that changing its executive suite, cutting costs and operating with "minimal capital spending" until commodity prices rebound is a better course.
The shares tumbled by nearly a third to 34 cents on the Toronto Stock Exchange on Wednesday. They have declined by 63 per cent over the past year. The change of course shows that, despite some recovery in the sector in recent months, the amount that buyers are willing to pay for oil and gas assets is still well below what many would-be sellers will accept.
The wide "bid-ask spread" – divergent views on value based partly on oil-and-gas price forecasts – has been cited as a main reason that merger and acquisition activity has been relatively muted. Other companies that have hired financial advisers to go the strategic alternatives route have found themselves to be tough sells. Twin Butte Energy Ltd. has yet to find a buyer and one analyst said last week that it may miss a payment on a demand loan unless it sells assets or a takeover deal is completed.
Zargon Oil & Gas Ltd. and Rock Energy Ltd. are among smaller producers that have sought buyers or other value-increasing ideas and have yet to reach a satisfying conclusion.
Interestingly, Cequence – whose large shareholders include ARC Financial Corp., Azimuth Capital Management and JOG Capital Corp. – is not among the exploration and production companies struggling to find ways to deal with crushing debt. In fact, it has very little. Instead, it is not generating the necessary cash flow to develop its main properties, which include the Simonette play in what is known as the Deep Basin of Western Alberta.
While its strategic alternatives process proceeded, North American gas prices slumped amid warm weather and ample supplies, and many analysts expect little, if any, recovery this year.
Jeffrey Jones