Torc Oil & Gas Ltd., a firm with a market capitalization of about $910-million, made a small all-stock deal Thursday, but it was enough to give the market hope that the oil patch's merger and acquisition prospects will pick up.
The company nabbed assets in southeast Saskatchewan from a private firm for the equivalent of $128-million. Torc will issue 16 million shares to make it happen, according to a statement it released Thursday. The shares, Torc said, are valued at $7.98 each, based on the company's 20-day volume weighted average trading price prior to the announcement.
Investors pushed up the share prices of companies in need of selling assets, like Penn West Petroleum Ltd., Legacy Oil + Gas Inc., and Lightstream Resources Ltd., in response to the deal. If Torc is buying, and at a valuation potential sellers would welcome right now, the market hopes other companies will follow suit and open their wallets.
Penn West closed at $2.76 per share, up 8 per cent or 20 cents per share on the Toronto Stock Exchange. It touched $2.92 earlier in Thursday's session. Legacy jumped 13 per cent or 24 cents to close at $2.09 a pop. It hit a high of $2.20 earlier in the day. Lightstream Resources Ltd. climbed about 23 per cent during afternoon trading, gaining 27 cents to close at $1.43 per share.
Lightstream in December put assets in the Bakken on the auction block as it grapples with its debt load; Legacy, another firm trying to tidy up its balance sheet, is trying to sell light oil assets in northwest Alberta; and Penn West is trying to sell assets outside its three main plays as struggles with debt.
Debt, however, is what makes the Torc deal different – and not directly comparable to other potential asset sales or takeovers.
Torc said its deal will give it additional cash flow without assuming more debt. The new properties are "highly economic even in the current oil price environment," according to Torc. The company said its newly-purchased wells churn out about 1,550 barrels of oil equivalent per day, and about 94 per cent of that is light oil and natural gas liquids.
Torc climbed 2.5 per cent Thursday afternoon, trading at $9.40 per share.
The benchmark price of oil in North America was worth $50.72, up 4.7 per cent, Thursday afternoon.