Globe & Mail Whitecap Resources Inc. is buying Torc Oil & Gas Ltd. in a $565-million all-stock deal to beef up oil production in Saskatchewan and Alberta regions where it has major operations.
Under the deal, Torc stockholders will get 0.57 of a Whitecap share for each of Torc share. Whitecap will also assume $335-million of Torc debt, for a total value of $900-million.
Torc’s operations, located in southeastern Saskatchewan and west-central Alberta, have “significant overlap” with Whitecap’s, the companies said.
The merger is the latest aimed at bringing scale and efficiency to the Canadian oil patch as a way to rekindle interest in the sector among major institutional investors. The stocks have been hit hard since the pandemic and a global oil price war crushed crude prices last spring.
Like other recent deals in the energy and mining industries, Torc shareholders are being offered a stake in a larger company with more financial wherewithal rather than a premium over the current value of their stock. The deal represents the second for Whitecap in less than four months, following its agreement to acquire NAL Resources for $155-million.
Whitecap executives will run the combined operation, which will produce about 100,000 barrels of mostly light-grade oil a day in 2021, based on capital spending of up to $300-million, they said. That compares with Whitecap’s stand-alone forecast of about 82,000 barrels a day. It is targeting increased free cash flow of $15-million annual through savings by merging the operations.
“Despite the challenging conditions and significant volatility throughout the year, we have become an even stronger and more resilient energy producer entering 2021 with the combination with TORC as well as the NAL transaction,” Whitecap chief executive Grant Fagerheim said in a statement.
Whitecap shares are down 21 per cent from the start of the year, though they made sharp gains as oil prices rose through November. Torc is down 42 per cent year-to-date.
As part of the deal, Whitecap plans to boost its dividend by 6 per cent starting with the April payout, it said.
The transaction is slated to close by Feb. 25. To proceed, two-thirds of Torc shareholders must vote in favour. Canada Pension Plan Investment Board, which as a 29 per cent interest in Torc has agreed to support the transaction, the companies said.
National Bank Financial Inc. and Burnet, Duckworth & Palmer LLP are Whitecap’s financial and legal advisers. RBC Capital Markets and McCarthy Ttrault LLP advised Torc.