skope energy There’s actually a lot of activity going on outside of the big M&A transactions that fly under the radar screens and is driven by public companies’ management teams and boards wondering whether they needed to do something inorganic — either to buy or to sell
What’s the worst that could happen if you’re caught in a commodity price collapse? Just ask Skope Energy Inc. Two years ago, Skope Energy Partners and Spurs Resources Ltd. bought the company’s assets for net $125-million, with nearly $75-million in bank financing.
But as natural-gas prices trended lower and slipped below $2 per British thermal unit, alarm bells started to ring.
“They got caught up in the commodity downside,” says Phillip Hodge, president and chief executive of Pine Cliff Energy Ltd. “The structure broke down, and the bank felt uncomfortable with the level of debt they had on those assets and they quit [well] boring, and they could no longer put any hedges on it — and that’s when the stock went down from $10 to a penny.”
Picking its moment, Pine Cliff swooped in, buying the company for 20% of the $125-million valuation — a cool $28-million.
The bank, Canadian Imperial Bank of Commerce, took a 48% haircut — an unheard of figure in the oil-and-gas sector, says Mr. Hodge, a former PennWest Exploration executive with a self-confessed ‘acquisitive’ streak.
Pine Cliff has filed a court application under the Companies’ Creditors Arrangement Act to enable the company to realize on Skope’s debt and Mr. Hodge expects approval by February.
The deal was an anomaly in terms of valuations, Mr. Hodge admits, but it would be transformational for Pine Cliff, raising its output from 1,100 barrels of oil equivalent per day to 4,600.