Pace Oil & Gas Ltd T.PCE

Even Scotia is negative on this deal....

[echo2]

 

"Recent Update Text as of 20DEC12

Pace to merge with AvenEx Energy Corp. and Charger Energy to form Spyglass

Resources Corp an 18,000 boe/d dividend paying corp.

Giving a lot to improve leverage. Based on the 1.3 share exchange ratio (PCE

receives 1.3 shares of SGL), we estimate the transaction is dilutive to

production & reserves per share by ~30%-40% and about 17% to cash flow while

debt improves by about 38%.

Targeting all in payout of 100%-115%. SGL expects capital efficiencies of about $25,000/boe/d, which would be a top quartile achievement. We had PCE's efficiencies at roughly $33,000/boe/d and utilizing this we get an effective payout closer to 130% and D/CF at 2.5x versus 2.2x (at $25,000/boe/d).

Net Asset Value:

$9.51

Price/NAV:

0.33x

Our take. While we held the view that PCE's asset base fits well into a
dividend model, its high debt level, in our opinion, was a hurdle. The proposed transaction does improve the debt outlook (D/CF at 2.5x versus PCE stand alone at 3.0x) but at a high cost in our opinion. Before this proposal, PCE waslooking at assets sales to de-lever and gear its focus on its emerging Pekisko play at Matziwin, where early results have been positive. Given PCE is now in play, we recommend investors hold the stock as terms of the exchange ratio may change to reflect better terms or another incoming bidder may surface.

We maintain our 2-SP rating and one-year target price of $5.50/share. "

If you haven't already, VOTE NO, to this merger. 

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