Debt-laden Calgary producer Long Run Exploration Ltd. is replacing a $100-million lifeline injection of Hong Kong money with a $100-million deal to sell the company to an unnamed group of Chinese investors.
The Calgary intermediate announced Monday the Chinese group has agreed to pay 52 cents per share while also taking over Long Run’s net debt of $679 million as of
Sept. 30, bringing the deal value to $770 million.
Multibillion-dollar investments by Chinese companies in the Calgary oilpatch have been scarce since the federal government moved to limit state-owned enterprise purchases in 2012 but there have been several smaller purchases.
Long Run chairman and chief executive Bill Andrew said Monday the buyers want their identity withheld for now but it will be released at a later date. He said they have current large oil and gas investments in Canada and, though they refer to themselves as a group, they operate as a corporation.
He said they plan to retain Long Run’s 200 employees in a private company which will have a similar business model to acquire, develop and grow oil and gas assets. They are offering $750 per $1,000 principal amount to buy out Long Run’s holders of 6.4 per cent convertible unsecured subordinated debentures
due Jan. 31, 2019.
The deal is reminiscent of the purchase of private Calgary producer New Star Energy Ltd. earlier this year for $215 million, including about $45 million in assumed debt.
In that case, the initially unnamed Chinese buyer was revealed later to be Sinoenergy Pacific Corp., a Beijing-based supplier to the natural gas transportation industry in China. New Star was its first Canadian purchase and it vowed to use it as a base to grow production.
In 2013, Novus Energy Inc. was sold to Yanchang Petroleum International Ltd. for $320 million and, in 2014, China Oil and Gas Group Ltd. bought private Baccalieu Energy Inc. for $236 million. In January 2015, Hyperion Exploration Corp. completed its sale to Tri-Win International Investment Group Inc. for $32 million.
The Long Run buyout, which requires shareholder, debentureholder, lender and court approvals, along with regulatory approvals from Investment Canada and, possibly, Chinese authorities, is expected to close in April, Williams said.
Long Run shares quickly doubled to 33 cents
on Monday morning after closing at 17 cents on Friday. In the past year, they’ve ranged between 11.5 cents and $1.67 each as Long Run struggled with low commodity prices.
“I wish investors got out of it what they put into it … but market conditions are horrible and we got caught on the wrong side of some acquisitions,” said Andrew.
“From where they were sitting on Friday, when the stock was 16 or 17 cents per share, this offer is for 52, it’s a 200 per cent lift. Short-term investors will be very happy; longer term investors … “
Long Run said Monday it had mutually agreed with Hong Kong-based Maple Marathon Investments Ltd. and MIE Holdings Corp. to cancel a deal without penalty where it would have given up 39 per cent of its equity in return for $100 million to be used to pay down debt.
Analyst Chad Ellison of Dundee Securities said in a note the buyers are paying about $27,845 per flowing barrel of oil equivalent per day based on 2016 forecast production. He said the deal saves Long Run from a series of looming debt deadlines over the next year — $100 million in January, $125 million in May and $125 million in November.
“Given the state of current commodity and capital markets, there was little certainty that one-off asset sales could cover off the required repayments,” he wrote.
“With all requisite closing requirements, there is some risk to the deal; however we believe the deal is beneficial to all stakeholders versus operating as a going concern in the current commodity market.”
Andrew said Long Run’s buyers accessed a data room opened in preparation to sell assets to make debt payments before indicating their interest in buying the company.
“Asia has equal footing with investors in the U.S., Canada and Europe right now,” he said. “When you have a company that’s being marketed or property being marketed, I think any of the investment bankers will tell you there’s a lot of interest from Asia.”
Long Run said directors, executives and certain shareholders of Long Run have agreed to vote about 11 per cent of the outstanding shares in favour of the transaction, which carries a $20-million non-completion fee.
The company reported a net loss of $305 million on a $285-million impairment charge and cash flow of $35 million in the third quarter as production averaged 30,700 boe/d, about 60 per cent natural gas.
dhealing@calgaryherald.com
https://calgaryherald.com/business/energy/unnamed-chinese-buyer-offers-100m-for-long-run-exploration-shares