CJ mention on Stockwatch Canadian energy companies continued their shopping spree. Scott Ratushny's Cardinal Energy Ltd. (CJ), down five cents to $3.17 on 2.36 million shares, is buying Kevin Wesa's private Venturion Oil for $47.5-million in cash and shares. The deal may mark a return to Cardinal's acquisitive habits of yore. From 2013 to 2017, Cardinal spent over $1.1-billion scooping assets in the Bantry, Mitsue and Wainwright areas of Alberta. Together these assets were producing around 18,000 barrels a day. Cardinal pushed this figure as high as 21,000 barrels a day through workovers and drilling, but acquisitions were undoubtedly its preferred method of expansion. Once the deals stopped in 2018 -- and especially once the COVID-19 downturn hit in 2020 -- production drifted down to around 17,500 barrels a day, only recently rallying back past 18,000.
Venturion will immediately add another 2,400 barrels a day, right in one of Cardinal's existing core regions, Wainwright. As it happens, Venturion has taken a similar approach to Cardinal over the years. It relied heavily on acquisitions -- sometimes not drilling a single well in an entire year -- to take its production up to around 4,900 barrels a day in 2016 from barely 100 barrels a day at its inception in 2012. The founder of the company was the above-mentioned Mr. Wesa, a reservoir engineer who previously co-founded Venturion Natural Resources and then sold it to Barrick Energy in 2011. Barrick was later sold to the above-mentioned Canadian Natural Resources in 2013. Incidentally, Canadian Natural's chairman then and now is the billionaire Murray Edwards, who last year became a sizable shareholder of Cardinal, linking all three companies.
Although Venturion's production has been cut in half since its peak, Cardinal sees plenty of remaining potential, as well as cost-saving opportunities from sharing infrastructure. Cardinal will pay $27.9-million cash and issue 6.3 million shares valued at $3.11 to acquire Venturion. It will need to tap creditors to be able to afford the cash portion. Although Cardinal raised over $20-million in December -- this being the financing through which Mr. Edwards became a sizable investor -- it used all of that and then some to redeem debentures in mid-March, leaving it with a cash balance of zero and a working capital deficit of $32.6-million as of March 31. Cardinal will draw down its credit facility and complete an insider note financing of $12.5-million to cover the cost of Venturion.