Whitecap Resources Inc. and Veren Inc. are joining forces in a $15-billion dollar deal to create a major Canadian shale player that they say will stand stronger against political and market upheaval than if they were to each go it alone.
“The pro forma company will be more resilient and better able to manage the current macro environment, including the ongoing threat of tariffs and commodity price volatility,” Whitecap CEO Grant Fagerheim told analysts on a conference call Monday.
The transaction would make Whitecap the seventh-largest Canadian oil producer by production, the biggest landholder in the Montney and Duvernay in western Alberta and the second-largest oil producer in Saskatchewan.
Under the all-stock transaction announced Monday, Veren shareholders are to get 1.05 shares of Whitecap for each Veren share they own.
The combined firm is to be led by Whitecap’s existing management team under the Whitecap name.
Four directors are to join the Whitecap board of directors, including Veren’s current chief executive, Craig Bryksa.
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The deal is expected to close before May 30 and needs shareholder, court and regulatory approval. After it’s done, current Whitecap shareholders will own about 48 percent of the combined entity and existing Veren shareholders will own the rest.
Fagerheim said the deal gives his company a leading position in the Montney and Duvernay shales in western Alberta, which are rich in valuable natural gas liquids. It will also increase its light oil position in Saskatchewan.
“Our combined company will include exceptional technical and support personnel from the two companies in both the office and field and an experienced board of directors that prioritizes sustainable and profitable growth to generate strong returns for our combined shareholders,” Fagerheim said in a news release.
Bryksa says the transaction positions the new company to have a competitive advantage.
“Both companies have been strategic and disciplined in their approach to building and developing these great assets,” he told analysts.
“I truly believe the combined company, with an enhanced excess cash flow profile, strong financial position and compelling return on capital is perfectly positioned to be more competitive and create further shareholder value.”
The companies are projecting more than $200 million in cost savings and efficiencies once they come together.
Whitecap will have total daily production of 370,000 barrels with the deal.
It and Veren each had a five-year plan to grow to 250,000 barrels of daily production. An analyst asked Fagerheim whether a 500,000 barrel-a-day target would now be plausible later this decade for Whitecap.
“I would make the assumption at this time that we would be able to achieve these types of growth metrics by putting the two companies together,” Fagerheim replied.
Veren, which changed its name from Crescent Point Energy last year, saw its shares spike more than 16 percent to $8.19 on the TSX.
Whitecap shares were down almost 15 percent to $7.99.
“We view the transaction positively to the extent that it provides shareholders of both companies with exposure to a significantly larger entity with overlapping interests in several areas of the Western Canadian Sedimentary Basin, including the Alberta Montney and Duvernay plays, and in Saskatchewan,” Desjardins analyst MacCulloch wrote in a note.
