Seven Generations Energy Ltd.’s Kakwa River Project
Seven Generations Energy Ltd.'s $650-million stock offering sold out quickly on Thursday, showing strong investor demand for companies that flourished during the downturn and can expand.
The bought deal, at $24.35 apiece, helps fund Seven Generations's $1.9-billion acquisition of natural-gas acreage from Paramount Resources Ltd. in its main Montney operating area in northwestern Alberta. The receipts will be exchanged for Seven Generations shares when the acquisition closes.
"It was phenomenal – really strongly supported," said a source familiar with the stock offering.
The bought deal was led by Royal Bank of Canada, Peters & Co. Ltd. and Credit Suisse, and comes on the heels of some other recent large offerings by Birchcliff Energy Ltd. and Suncor Energy Inc., all of which have made big acquisitions despite the oil-price collapse.
As part of the deal announced on Wednesday, Paramount will pick up a 10 per cent interest in Seven Generations, allowing it to maintain some exposure to the Montney, one of a handful of Western Canadian natural gas plays that have been the target of brisk industry spending. It becomes a much smaller company, producing about a fifth of the volume it did earlier this year. It also has interests in several other producers.
Meanwhile, Seven Generations has agreed to assume $450-million (U.S.) of Paramount notes, helping the vendor dig out from its high debt load.
Shares in both companies surged early Thursday. Paramount was up nearly 14 per cent at $12.43 (Canadian) on the Toronto Stock Exchange. Seven Generations gained 7 per cent to $26.82, its highest since going public in late 2014.
The outcome of the transaction is ideal for the companies, said David Taylor, president and portfolio manager at Taylor Asset Management. For Seven Generations, the acreage is the most logical addition it could have made to its existing operations in the Montney region. Mr. Taylor has stock in both companies as top holdings in various funds.
"It basically duplicates their land. It's the same rock, the same geology, the same play and the same economics - so everything about it makes sense," he said. "They've said over and over how attracted they are to the assets, and they're a big company now. They need to drill a lot to fulfill pipeline commitments."
Indeed, chief executive officer Pat Carlson had said early this year that the company was considering buying gas from other companies to meet its shipping commitments.
Seven Generations is known for its Kakwa River project, south of Grande Prairie, Alta. Following the deal's close, its production will rise by 26 per cent to 145,000 barrels of oil equivalent a day, the company said.
Jeffrey Jones